In 1980 more than 80% of the beer in the UK was consumed in pubs. Over time, a series of economic squeezes, changing demographics, health awareness campaigns, the ban on smoking in pubs and, perhaps most crucially, aggressive price discounting by supermarkets have produced a seismic shift. Data just reported shows that supermarket and off-licence sales comprised 51% of all beer sales in the UK during 2015. Would this be a good or a bad thing if you were one of the 145,000 pubs, clubs, restaurants or hotels that sell beer in the UK? Who wins and who loses out of this change? And what would a strategic response to this trend data look like?
As the Euro 2016 finals kick off tomorrow, it is interesting to ask whether this is a chance for sporting glory, commercial glory or both? Read more here.
A recent attempt to reposition BHS as a food retailing prompted jokes about “Bring Home Sausages”. It was the latest example of a business struggling to answer the core strategic questions: who are we, who are our competitors, and on what basis should we compete? The administrators will be looking for a buyer with compelling and plausible answers to these deceptively simple questions. They are essential if BHS is to craft a viable space in a crowded marketplace that looks further and further removed from the familiar high-street locations of its past. These are certainly the issues that will be troubling for any potential buyer of the business as a going concern. You can read a little more on BHS here.
We have got used to Google as a massive global success story. But sometimes the detail is more interesting than the top line. On February 1 an announcement by the firm’s holding company Alphabet gave investors their first real insight into the relative performances of its different parts. And it revealed a lot about a section of the operation of which we previously knew very little – the large number of investments into technologies that are some distance from the core businesses.
We now know that these “moonshots”, as they have come to be known, produced an operating loss of $3.6bn (£2.5bn) in 2015. They lost $1.9bn in 2014 and $527m in 2013. You may have heard about the wearable technology or the driverless cars, but it goes much further than that. There is fibre-optic broadband, Indian railway wifi, thermostats, IP video cameras and solar-powered drones. Then there is Google’s X-lab. Initially shrouded in secrecy, it is now known to be working on everything from contact lenses for diabetics that can monitor glucose levels in tears, to nano-particles that will be able to predict disease.
The revelation about the losses didn’t stop Alphabet from replacing Apple as the most valuable company on the planet the day after the announcement. So what can we infer from its seemingly voracious appetite for newness?
An initial reaction in the UK might be indignation that a firm which can invest $3.6bn in side-bets recently agreed to pay only £130m in back taxes to the British tax collector. Beyond this, there are at least two plausible interpretations of the firm’s desire to diversify further and faster than many expected.
First, it could be seen as part of a long-term strategy to ensure continued growth and domination. Many of Alphabet’s core services have more than a billion users and the vast majority of its revenues flow from paid searches and advertising. The firm is now searching for the next billion users. They are likely to be found in emerging markets, predominantly mobile and more diverse, which fits with the idea of spreading the risk capital around.
Many of the investments will turn out to be ineffective, but you usually have no way of knowing in advance. Some technologies or business models will prove unworkable for some as yet unknown reason. Just ask Sir Clive Sinclair – his C5 battery-operated car was in many ways ahead of its time, but soon became one of the most infamous marketing disasters ever.
The logic might be that – if you have the money to spare – it pays to invest broadly and look out for those early signs of rapid growth. After all, the management team at Google has long since demonstrated the capacity to build a market-leading position. Who would bet against them being able to do so again, especially when they are both better resourced and more experienced?
A second interpretation of the moonshot strategy could be that the firm’s founders are trying to combine a search for longevity with the adrenaline-fuelled high of creating a new business. But the harsh reality is that it is harder to fake the feel of a start-up when you’re a billionaire. The staggering investment in new ideas is nothing compared to Alphabet’s earnings. In the last three months of 2015 alone, the company made a net profit of $4.9bn. Arguably it doesn’t really matter if these businesses fail because other new ideas will pop up next year and you could fund them instead.
It would be a mistake to think that the future was assured for the company, however. Over the millennia, civilisations have grown to dominant positions and then failed. If it happened to the Incas, the Egyptians and the Romans, why wouldn’t it happen to Google?
The reality is that few firms survive to reach their 100th birthday. Nokia used to be the exemplar case with its narrative tracing an arc from foundation in 1865 as a riverside paper mill in Finland to a position dominating the global smartphone industry. But where is Nokia now?
Indeed it may be the observation that no civilisation, industry, technology or firm has dominated indefinitely that drives co-founder Larry Page to acknowledge that there is no blueprint, no precedent for the kind of business that Google is trying to become. Page has long argued that Google was set up to be different and wanted to avoid becoming overly conventional. The much-vaunted ethos of not doing evil was one reflection of this, but so are the moonshots. These kinds of bets have enabled firms to transition before – take IBM’s gradual move from a hardware business to software and services. Moonshots have also become part of the culture of the American new media giants. Amazon is experimenting with drones and newspapers while Facebook has bet heavily on virtual reality.
Each firm had already accumulated significant wealth by the time it began to diversify, justifying bets that few other listed companies would get away with. This raises a more pessimistic reading of Alphabet’s investment pattern. It could be characteristic of the kind of opulence that occurs at the height of an empire but tends not to last. If so, you can be sure that the management team will be reminded of every last contact-lens investment and solar-powered drone on the way down.
Predicting the future has always been difficult. Civilizations have often held those who claimed to be able to foresee what lay ahead in high regard despite some flaws in the methods and a lack of reliable results. Indeed, one might observe that the real skill in a fortune teller is their capacity to reinterpret the outcome in real time and claim some credit for predicting down not up, good for bad, etc. Those who naturally focus on the future configuration of market opportunities are called trend-driven strategists in our terminology and in most organizations there will be at least a few who seem to have an uncanny knack for spotting opportunities that others have missed. The soft drinks market has been in the news recently with major player Coca-Cola reflecting on whether Coke Life is a success or not. Launched in 2014, the early signs were promising. The green label marked continued engagement with the idea of lower sugar levels than the standard variant but also tied into a perceived desire to avoid artificial sweetners. As the brand enters its third year, sales appear to be down and questions are being asked. Should they withdraw the product? Or perhaps the Life brand is an early signal of the splintering of a mass market into smaller and smaller niches where eventually the consumer will be able to design their own Coke with full fat, diet, zero, life, vanilla, cherry, citrus, caffeine, no caffeine, double caffeine, etc. as they see fit. If you knew which of these were true you could make a small fortune by advising Coca-Cola but in the absence of certainty there are still things that you can do to improve the robustness of your strategy. That, after all, is the role of the strategist. For an interesting review of the Coke product roster (including the infamous New Coke story click here.
Over the festive break I came across a great story involving a global star and my home city. Pop icon Madonna brought her world tour to Glasgow to play the SSE Hydro just before Christmas. Those attending were treated to something which none of them will forget. The self-styled Queen of Pop left the stage to thunderous applause but when she tried to come back and play one last hit as an encore she discovered that the power had been cut. Furious, she and her dancing entourage went on anyway and played without the benefits of sound, lighting, dry ice and whatever else the intended stage show involved. You can see a clip here. The moral of this Christmas scene? It is simply that when you see something of this sort happen there is usually more than one interpretation of events to consider. Madonna’s was that this was an outrage perpetrated by the small-minded bureaucrats of the venue who dared to cut the power because the show had passed the curfew imposed by the local authorities. “Don’t try to silence the Queen” was her Instagram retort. Staff at the venue were quick to point out that it was the road crew who had disconnected the power and lights when the agreed set had been completed. The fact that Madonna had chosen to return to the stage for one last unplanned number caused the problem. Yet a third explanation is also plausible. The star didn’t appear on stage to open the show until 9.45pm. Perhaps if she’d started at a more conventional 8.30pm everyone would have gone home happier and earlier. So what does this tell us about strategy? Well it reaffirms the central importance of problem framing. As a species we are pretty good at problem solving. It is our skill at problem solving that places us at the top of the evolutionary chain, on this planet at least. However, problem solving can be such an addictive process that it often overshadows the more strategically oriented process of problem framing. Choosing which problem to solve is the reserve of the strategist. You can see that the three explanations of the unplanned, unplugged version of Madonna’s show would produce three different strategic responses. The myriad of problem frames that we inadvertently adopt or inherit influence the long-term strategic behaviour of our organisations much more than we tend to notice. You’ll find further information on problem framing in Strategic Management: strategists at work. I wonder which version of events Madonna will settle on?
Some two decades after launching on the internet, Amazon has opened its first retail outlet. Its a bookstore at the University Village in Amazon’s home town, Seattle. The store will stock a much narrower range of books than the various .com, .co.uk and other domains do since even Amazon can’t change the laws of physics. Nevertheless, actual hard copy books will be available at the same price as the website. Having almost single handedly dismantled high street book retailing in the developed world, what are Amazon up to? There are a couple of plausible explanations.
First, the store could be a blueprint for a different, more hybrid model of retailing. Order on line and collect in store is not new. John Lewis, Argos and many other retailers have demonstrated that click and collect is a viable model decoupling the convenience of seeing the product from the actual delivery and collection process. Second, maybe Amazon have seen the impact of the Apple Store on brand awareness, etc. As Amazon move further into devices of all shapes and sizes from e-readers, to tablets, to phones they may want to offer consumers the opportunity to be wooed by shiny displays or an in store genius. Third it could be a mix of hubris or guilt. Amazon’s clever use of technology revolutionised book selling. Traditional booksellers found it hard to live with the low cost, high convenience, almost infinite choice that a website and a warehouse offered. Despite moving well beyond books, maybe Amazon has a sentimental streak around the role of the bookshop in society. Or maybe it is some form of vanity project that a phenomenally profitable business can easily afford. Maybe, just maybe, it is a beachhead from which other product lines will be launched.
Whatever lies behind the decision, it is a bold and unexpected moved which indicates that it will probably turn out to be strategically important. Will Amazon be on a high street near you in five years?
The BBC reported yesterday that around 35% of UK jobs will be automated within the next 20 years. As with all such predictions, there is the nagging worry that it could be right. The original research by Frey and Osborne suggests that those roles which involve creativity and/or manual dexterity will be most resistant to automation. The authors point to Keynes and his assertion, in 1933, that we would find more efficient ways of working faster than we would find ways of redeploying those who had been rendered obsolete. This in turn introduces the nagging worry that the prediction could be wrong. If Keynes has been arguing that technology would displace or replace the worker since the 1930s, surely there’s nothing to worry about? With all such long term trends it comes down to timing. For that reason, it is helpful to have a trend-driven strategist in your team since they, by their nature, notice what is changing and join the dots in new ways that others have not yet seen. If you’re not sure which kind of strategist you are then try the free Stride app in the Apple store, or register here to get a full diagnosis of your strategy style. Meantime, work on those nimble fingers and bright ideas.
Google has been one of the biggest and fastest success stories in corporate history. Now cash rich and embedded in the everyday lives of a billion users, Google has begun to think “what next?” You can’t help but have noticed the plethora of things that they’ve been dabbling with from Google Glasses to driverless cars via mapping, mobile, translation and devices. What are they up to? In the words of their new CEO, they are trying to figure out how to reach the next billion users. Those users are likely to be in the developing rather than the developed economies and they’re far more likely to be using a mobile handset than a desktop. Take a look at what Sundar Pichai the new CEO of Google has to say about where the organization is headed and why it is headed there. Then, ask yourself does this look like an organization with a clear strategic direction or does it look like a triumph or resources over ideas? Only time will tell.
The last decade has witnessed a boom in the digital consumption of movies and television. We are now used to the idea of consuming a whole TV series in one sitting and we expect the production values of new shows to be as high, if not higher than, their cinematic equivalent. Big name stars, writers, directors and producers are working across both TV and cinema with major players are keen to secure your business. Netflix, Amazon Prime, HBO and others are competing to secure monthly subscriptions on the basis of both the back catalogue on offer and exclusive new content offerings. When the BBC parted company with the team behind Top Gear, Clarkson, Hammond, May and Wilman turned up at Amazon Prime with a big budget and bigger ambitions. So is the only way to compete to further extend the already sizeable catalogue of shows and films that subscribers can see? Not necessarily. Many subscribers struggle with the overwhelming choice confronting them on the home page, aggrieved that they spend more time deciding what to watch than they do watching anything. In contrast, Mubi focuses on a curated collection of 30 movies at any one point in time. Each carefully chosen by the providers with one new film added, and one existing film removed from the collection each day. Following a strategy of less is more, and focusing on the particular skill of choosing movies on your behalf creates a niche where Mubi might have an advantage. It won’t work for everyone but it might work for enough people to make it viable. As an example of trying out-think a better resourced competitor, Mubi offer a thought provoking illustration of a resource-driven strategy.